Under the Income Tax Act, 1961, as amended by the Finance Act, 2025, the following categories of taxpayers are mandatorily required to get their accounts audited under Section 44AB for the Financial Year (FY) 2024–25 (Assessment Year 2025–26):​

🔹 1. Businesses

• Turnover exceeding ₹1 crore: If the total sales, turnover, or gross receipts exceed ₹1 crore in a financial year, a tax audit is mandatory.​

• Turnover between ₹1 crore and ₹10 crore: If the turnover is up to ₹10 crore and cash transactions do not exceed 5% of the total receipts and payments, a tax audit is not required. This promotes digital transactions and reduces compliance for businesses operating primarily through banking channels.

• Turnover exceeding ₹10 crore: Regardless of the mode of transactions, if the turnover exceeds ₹10 crore, a tax audit is compulsory.​

🔹 2. Professionals

• Gross receipts exceeding ₹50 lakh: Professionals such as doctors, lawyers, architects, etc., must undergo a tax audit if their gross receipts exceed ₹50 lakh in a financial year.​

• Enhanced threshold to ₹75 lakh: If cash receipts do not exceed 5% of the total gross receipts, the threshold for mandatory tax audit is increased to ₹75 lakh. ​

🔹 3. Presumptive Taxation Scheme Optants

• Section 44AD (Businesses): If a taxpayer declares profits lower than the prescribed rate (8% or 6% for digital transactions) and their total income exceeds the basic exemption limit, a tax audit is required.​

• Section 44ADA (Professionals): Professionals opting for presumptive taxation under this section must get their accounts audited if they declare profits lower than 50% of gross receipts and their total income exceeds the basic exemption limit.​

🔹 4. Other Specific Cases

• Section 44AE, 44BB, or 44BBB: Taxpayers declaring income lower than the deemed profits under these sections and whose total income exceeds the basic exemption limit are required to get their accounts audited.​

⚠️ Penalty for Non-Compliance

Failure to comply with the tax audit provisions can attract a penalty under Section 271B, which is the lesser of:​

• 0.5% of the total sales, turnover, or gross receipts, or​

• ₹1,50,000.​

However, if the taxpayer can demonstrate a reasonable cause for the failure, the penalty may be waived.

Leasing of trucks falls under the scope of “business”, as defined in Section 2(13) and 2(28C):”Business includes trade, commerce or manufacture or any adventure in the nature of trade…”

So, income from truck leasing is taxable under the head ‘Profits and Gains of Business or Profession’ [Section 28].

Two Methods of Computation:

1️⃣ Presumptive Taxation – Section 44AE (for small transporters)

Applicable only if the person owns ≤ 10 goods vehicles (including leased ones).

📘 Bare Act (Section 44AE):

“The income shall be deemed to be ₹1,000 per ton of gross vehicle weight (GVW) for heavy goods vehicles and ₹7,500 per month per vehicle for other goods vehicles.”

💡 Key Points:

• Applies to persons owning goods carriages, even if leased out

• Applicable only for goods vehicles, not passenger vehicles

• Income is presumed, no need to maintain books (Sec 44AA not required)

• Heavy goods vehicle = GVW > 12,000 kg

• No further deduction allowed (like depreciation, etc.)

✅ Example:

Mr. A owns 5 trucks (each <12,000 kg) and leases them.

→ Presumptive income = ₹7,500 × 5 trucks × 12 months = ₹4,50,000

This ₹4.5 lakh will be taxable under “Business Income” without further deductions.

2️⃣ Normal Taxation (Section 28 & 32) – If not opting 44AE or owning > 10 vehicles

If the assessee:

• Owns more than 10 trucks, or

• Chooses not to opt for Section 44AE,
  Then normal business provisions apply.

🔹 Income = Gross Receipts – Allowable Expenses

Allowable expenses include:

• Truck maintenance & fuel

• Driver wages, RTO fees, etc.

• Depreciation under Section 32 (usually 30% for trucks on WDV basis)

• Interest on loans for trucks

• Insurance and road tax

📒 Books of accounts must be maintained as per Section 44AA
🔍 Accounts may be audited if turnover exceeds limits in Section 44AB

Which is Better?

hough the term “Notional Cost of Acquisition” is not explicitly defined in the Income Tax Act, it is judicially and administratively recognised in cases where:

No actual purchase price exists, and the cost of acquisition has to be deemed or inferred by law, for the purpose of computing capital gains.

We can take the reference of the below sections:

Section 49(1):

Where the capital asset becomes the property of the assessee under a gift or will, the cost of acquisition shall be deemed to be the cost for which the previous owner acquired it.

Section 55(2)(a):

In the case of goodwill, trademark, brand name, tenancy rights, loom hours, right to manufacture/produce, etc., the cost of acquisition shall be taken as Nil, if self-generated.

Section 55(2)(b):

For assets acquired before 01.04.2001, the assessee has the option to take:

“the cost of acquisition shall, at the option of the assessee, be the fair market value of the asset as on 1st day of April, 2001.”

Summary:

Practical Scenarios of Notional Cost:

As per Section 45(2) “Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion of a capital asset into stock-in-trade… shall be chargeable to income-tax as income of the previous year in which such stock-in-trade is sold or otherwise transferred.”

TWO-PART TAXATION MECHANISM:

Part A – Capital Gain under Section 45(2)

This portion represents appreciation in value till the date of conversion.

Capital Gain = FMV on date of conversion – Indexed Cost of Acquisition

• FMV = Fair Market Value on date of conversion (as per Section 45(2))

• Indexed Cost = Original cost adjusted using Cost Inflation Index (CII)

💡 Long-Term or Short-Term?
✔️ Depends on the holding period till date of conversion.

Part B – Business Income under Section 28(i)

This portion represents appreciation after conversion, i.e., the gain between FMV on conversion date and actual sale price.

Business Income = Sale Price – FMV on date of conversion

💡 Taxed as business profit in the year of actual sale.

TWO TYPES OF TRANSFERS INVOLVED:

A. Transfer by Partner to Firm (Section 45(3))

When a partner contributes capital asset to the firm then Section 45(3) is applicable which says that: “The amount recorded in the books of the firm for such asset shall be deemed to be the full value of consideration for computing capital gain in the hands of the partner.”

✅ Computation in hands of Partner:

📌 Capital gain is taxed in the year of contribution.

B. Transfer by Firm to Partner (Section 45(4) & Section 9B)

Applicable when firm reconstitutes (retirement/admission/death) or distributes assets (including dissolution).

Section 45(4): Capital Gain in Hands of Firm Inserted by Finance Act, 2021 (effective from AY 2021–22) says that “If a specified person receives capital asset or money from firm upon reconstitution and value exceeds balance in capital account, then capital gain shall be taxed in the hands of the firm.”

🔹 Computation (Section 45(4)):

Capital Gain = A – B

Where:

• A = Value of money + FMV of capital asset received

• B = Balance in capital account of partner (without revaluation/self-generated goodwill)

➡️ Tax is in the hands of the firm.

Summary: